South China Morning Post
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Pedestrians in Beijing. China may be hoping for an early breakthrough on a trade settlement with Washington, but this misses the point. It is the domestic economy that is most at risk and where more of China’s attention is needed. Photo: Bloomberg
Opinion
Macroscope
by David Brown
Macroscope
by David Brown

It’s time for China to be honest about the poor shape of its economy

  • The comforting numbers, rose-tinted projections and all-round positive spin that Beijing has been feeding the public have to stop. The Chinese economy is in trouble and policymakers must take radical action to stop the rot
David Brown
David Brown
Why you can trust SCMP
The truth is out there – all Beijing needs is a clearer picture about China’s future potential and how to achieve it, with so much impending uncertainty. Officials still seem confident economic growth can come in at around the 6 per cent mark this year, although real data trends suggest otherwise. China’s economy is slowing quite dramatically and the government should be quick to admit it. 
Beijing seems long on hype and short on reality about what’s really happening to growth. The global economy has taken a hard knock, thanks to the US-China trade war, and a greater shock is on the cards unless the row is resolved soon. World trade flows are slowing, growth expectations are suffering and financial markets are rattled. Beijing still has a chance to put things right and stay ahead of the game, but only with the right policies in place.

China’s economy is crying out for brave management and a bold action plan. It’s no use Beijing beating around the bush with policy half-measures. Beijing needs barnstorming economic stimulus with more tax cuts, deficit spending and monetary easing than has been the case so far. But it needs better understanding about past, present and future trends on which to base its decisions.

China won’t toss the global economy a stimulus lifeline in 2019

Government forecasters should be brutally honest about the economy’s loss of momentum. It is pointless putting on a positive spin, leaving policymakers struggling to make do with ill-defined, rose-tinted projections. Beijing needs to understand all the contingent risks. If future gross domestic product simulations are centred on a 4-to-5 per cent range this year, it is cause for alarm. If 2-to-3 per cent GDP growth is on the cards this year, the government should hit the panic button.

Pumping out middle-of-the-road forecasts for 6-to-6.5 per cent growth for 2019 is nothing less than counterproductive. Beijing should rid itself of any notion of near-term stabilisation without radical intervention. China’s growth rate has been on a slippery slope for the past eight years, with no end in sight. Growth has fallen sharply from a post-crash peak of 12.2 per cent in early 2010 to 6.4 per cent at the end of last year. The negative trend looks set to extend.
It’s not just over-rosy forecasts; government statistics which fail to pinpoint weak spots in the economy are just as damaging for policymaking. While official data still paints a cautiously optimistic picture right now, less mainstream growth metrics reveal a much softer side. Car sales, the housing market and private-sector surveys show real activity rates are slipping badly.

Some official data can even be downright misleading. Take, for instance, the National Bureau of Statistics’ consumer confidence index showing optimism running close to a 25-year high. It is well out of line with independent market reports showing deeper concerns about the trade war, job insecurity and weaker purchasing power, causing consumers to budget much more carefully. As a major GDP driver, with consumer spending accounting for up to two-thirds of China’s growth, this is critical.

Source: New View Economics

The slower pace of retail sales, falling auto purchases and muted housing market conditions are all adding to a potential shortfall in consumer demand. The government should be worried enough to step up provisions to cut taxes further, boost job-creation and cut the cost of borrowing. Beijing needs to get its skates on to stop the rot.

China’s top economists call for more action to fend off growing risks

Economic confidence is vital for growth but it is slipping. And it is not just consumer optimism in doubt. A raft of business confidence surveys shows factory output, new recruitment and investment intentions increasingly at risk. The building blocks for faster sustainable recovery are just not there.

Beijing may be hoping for an early breakthrough on a trade settlement with Washington, but this misses the point. It is the domestic economy that is most at risk and where Beijing needs to focus much more effort. Opening up the monetary and fiscal floodgates is a pressing priority now.

The government must wake up to the risks before it is too late. Beijing cannot afford to bury its head in the sand any longer.

David Brown is chief executive of New View Economics

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